##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 FORM 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 For the quarterly period ended September 29, 2007
 or
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 For the transition period from  to
 Commission File Number: 00030733
 AMERICAN
MEDICAL SYSTEMS HOLDINGS, INC.
  Delaware
    
    41-1978822(State or other jurisdiction of 
incorporation or organization)
    
    (I.R.S. Employer Identification No.)
 10700 Bren Road West, Minnetonka, Minnesota
    
    55343(Address of principal executive offices)
    
    (Zip Code)
 952-930-6000
 
   þ o
  þ o o
  o þ




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##### 



INDEX
 PagePART I
    
    FINANCIAL INFORMATIONITEM 1.
    
    FINANCIAL STATEMENTS (UNAUDITED)Consolidated Statements of Operations for the three and nine month periods ended September 29, 2007 and September 30, 2006
    
    
    3Consolidated Balance Sheets as of September 29, 2007 and December 30, 2006
    
    
    4Consolidated Statements of Cash Flow for the nine month periods ended September 29, 2007 and September 30, 2006
    
    
    5Notes to Consolidated Financial Statements
    
    
    6ITEM 2.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
    
    
    29ITEM 3.
    
    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
    
    
    42ITEM 4.
    
    CONTROLS AND PROCEDURES
    
    
    42PART II
    
    OTHER INFORMATIONITEM 1.
    
    LEGAL PROCEEDINGS
    
    
    43ITEM 6.
    
    EXHIBITS
    
    
    43SIGNATURES
    
    
    44EXHIBIT INDEX
    
    
    45Certification of CEO Pursuant to Section 302Certification of CFO Pursuant to Section 302Certification Pursuant to 18 U.S.C. Section 1350




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##### Table of Contents



PART I. FINANCIAL INFORMATION
 
 ITEM 1. FINANCIAL STATEMENTS
 American Medical Systems Holdings, Inc.
 
 Consolidated Statements of Operations
   Three Months Ended
    
    
    Nine Months EndedSeptember 29, 2007
    
    
    September 30, 2006
    
    
    September 29, 2007
    
    
    September 30, 2006Net sales
    
    $
    109,041
    
    
    $
    90,500
    
    
    $
    333,879
    
    
    $
    242,906Cost of sales
    
    
    24,441
    
    
    
    18,865
    
    
    
    77,925
    
    
    
    42,302Gross profit
    
    
    84,600
    
    
    
    71,635
    
    
    
    255,954
    
    
    
    200,604Operating expensesMarketing and selling
    
    
    42,278
    
    
    
    31,465
    
    
    
    123,402
    
    
    
    88,649Research and development
    
    
    9,918
    
    
    
    9,295
    
    
    
    32,047
    
    
    
    22,849In-process research and development
    
    
    
    
    
    
    61,500
    
    
    
    
    
    
    
    89,575General and administrative
    
    
    10,128
    
    
    
    8,552
    
    
    
    31,704
    
    
    
    22,681Integration costs
    
    
    
    
    
    
    273
    
    
    
    1,103
    
    
    
    273Amortization of intangibles
    
    
    4,516
    
    
    
    5,172
    
    
    
    13,969
    
    
    
    8,798Total operating expenses
    
    
    66,840
    
    
    
    116,257
    
    
    
    202,225
    
    
    
    232,825Operating income (loss)
    
    
    17,760
    
    
    
    (44,622
    )
    
    
    53,729
    
    
    
    (32,221
    )Other (expense) incomeRoyalty income
    
    
    3,482
    
    
    
    479
    
    
    
    4,664
    
    
    
    1,340Interest income
    
    
    333
    
    
    
    1,364
    
    
    
    962
    
    
    
    2,120Interest expense
    
    
    (9,460
    )
    
    
    (8,907
    )
    
    
    (28,681
    )
    
    
    (9,260
    )Financing charges
    
    
    (1,130
    )
    
    
    (491
    )
    
    
    (2,667
    )
    
    
    (7,446
    )Other income
    
    
    736
    
    
    
    107
    
    
    
    2,710
    
    
    
    397Total other (expense) income
    
    
    (6,039
    )
    
    
    (7,448
    )
    
    
    (23,012
    )
    
    
    (12,849
    )Income (loss) from continuing operations
before income taxes
    
    
    11,721
    
    
    
    (52,070
    )
    
    
    30,717
    
    
    
    (45,070
    )Provision for income taxes
    
    
    4,796
    
    
    
    5,862
    
    
    
    12,083
    
    
    
    9,485Net income (loss) from continuing operations
    
    
    6,925
    
    
    
    (57,932
    )
    
    
    18,634
    
    
    
    (54,555
    )Loss from discontinued operations, net of
tax benefit (see Note 3)
    
    
    
    
    
    
    (672
    )
    
    
    (691
    )
    
    
    (672
    )Net income (loss)
    
    $
    6,925
    
    
    $
    (58,604
    )
    
    $
    17,943
    
    
    $
    (55,227
    )Net income (loss) per shareBasic net earnings (loss) from
continuing operations
    
    $
    0.10
    
    
    $
    (0.83
    )
    
    $
    0.26
    
    
    $
    (0.78
    )Discontinued operations, net of tax
    
    
    
    
    
    
    (0.01
    )
    
    
    (0.01
    )
    
    
    (0.01
    )Basic net earnings (loss)
    
    $
    0.10
    
    
    $
    (0.84
    )
    
    $
    0.25
    
    
    $
    (0.79
    )Diluted net earnings (loss) from
continuing operations
    
    $
    0.09
    
    
    $
    (0.83
    )
    
    $
    0.25
    
    
    $
    (0.78
    )Discontinued operations, net of tax
    
    
    
    
    
    
    (0.01
    )
    
    
    (0.01
    )
    
    
    (0.01
    )Diluted net earnings (loss)
    
    $
    0.09
    
    
    $
    (0.84
    )
    
    $
    0.24
    
    
    $
    (0.79
    )Weighted average common shares used in calculationBasic
    
    
    72,166
    
    
    
    70,122
    
    
    
    72,001
    
    
    
    69,877Diluted
    
    
    73,740
    
    
    
    70,122
    
    
    
    73,605
    
    
    
    69,877
 The accompanying notes are an integral part of the consolidated financial statements.
 3




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##### Table of Contents



American Medical Systems Holdings, Inc.
 
 Consolidated Balance Sheets
  September 29, 2007
    
    
    December 30, 2006(Unaudited)AssetsCurrent assetsCash and cash equivalents
    
    $
    23,612
    
    
    $
    29,051Short term investments
    
    
    639
    
    
    
    490Accounts receivable, net
    
    
    99,268
    
    
    
    91,938Inventories, net
    
    
    59,884
    
    
    
    37,974Deferred income taxes
    
    
    10,832
    
    
    
    11,065Other current assets
    
    
    10,003
    
    
    
    21,572Assets of discontinued operations
    
    
    
    
    
    
    46,078Total current assets
    
    
    204,238
    
    
    
    238,168Property, plant and equipment, net
    
    
    55,513
    
    
    
    47,035Goodwill
    
    
    702,519
    
    
    
    677,053Developed and core technology, net
    
    
    98,325
    
    
    
    110,634Other intangibles, net
    
    
    48,869
    
    
    
    50,022Investment in technology and other assets
    
    
    1,740
    
    
    
    1,148Other long-term assets, net
    
    
    2,636
    
    
    
    3,031Total assets
    
    $
    1,113,840
    
    
    $
    1,127,091Liabilities and Stockholders EquityCurrent liabilitiesAccounts payable
    
    $
    18,286
    
    
    $
    15,430Accrued compensation expenses
    
    
    17,925
    
    
    
    17,019Accrued warranty expense
    
    
    3,594
    
    
    
    2,715Income taxes payable
    
    
    4,092
    
    
    
    Other accrued expenses
    
    
    30,356
    
    
    
    47,891Liabilities of discontinued operations
    
    
    
    
    
    
    19,478Total current liabilities
    
    
    74,253
    
    
    
    102,533Long-term debt
    
    
    667,664
    
    
    
    713,456Deferred income taxes
    
    
    29,760
    
    
    
    22,296Long-term income taxes payable
    
    
    9,683
    
    
    
    4,584Long-term employee benefit obligations
    
    
    3,060
    
    
    
    3,060Total liabilities
    
    
    784,420
    
    
    
    845,929Stockholders equityCommon stock, par value $.01 per share; authorized
220,000,000 shares; issued and outstanding:72,187,224
shares at September 29, 2007
and 71,059,312 shares at December 30, 2006
    
    
    722
    
    
    
    711Additional paid-in capital
    
    
    280,747
    
    
    
    253,127Accumulated other comprehensive income
    
    
    7,102
    
    
    
    4,155Retained earnings
    
    
    40,849
    
    
    
    23,169Total stockholders equity
    
    
    329,420
    
    
    
    281,162Total liabilities and stockholders equity
    
    $
    1,113,840
    
    
    $
    1,127,091
 The accompanying notes are an integral part of the consolidated financial statements.
 4




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##### Table of Contents



American Medical Systems Holdings, Inc.
 
 Consolidated Statements of Cash Flow
   Nine Months EndedSeptember 29, 2007
    
    
    September 30, 2006Cash flows from operating activitiesNet income (loss)
    
    $
    17,943
    
    
    $
    (55,227
    )Loss from discontinued operations
    
    
    (691
    )
    
    
    (672
    )Income (loss) from continuing operations
    
    
    18,634
    
    
    
    (54,555
    )Adjustments to reconcile net income (loss) from continuing operations to net cash
provided by operating activitiesDepreciation
    
    
    6,229
    
    
    
    4,031(Gain) loss on asset disposals
    
    
    (15
    )
    
    
    331Amortization of intangibles
    
    
    13,969
    
    
    
    8,798Amortization of deferred financing costs
    
    
    2,667
    
    
    
    491In-process research and development charges
    
    
    
    
    
    
    89,575Financing charges on credit facility
    
    
    
    
    
    
    6,955Excess tax benefit from excercise of stock options
    
    
    (213
    )
    
    
    (1,515
    )Tax benefit on exercised stock option arrangements
    
    
    744
    
    
    
    5,614Change in net deferred income taxes
    
    
    7,440
    
    
    
    4,701Stock based compensation
    
    
    9,142
    
    
    
    6,980Changes in operating assets and liabilities:Accounts receivable
    
    
    (2,919
    )
    
    
    (8,489
    )Inventories
    
    
    (29,830
    )
    
    
    (3,456
    )Accounts payable and accrued expenses
    
    
    (19,861
    )
    
    
    27,807Other assets
    
    
    21,817
    
    
    
    (22,594
    )Net cash provided by operating activities
    
    
    27,804
    
    
    
    64,674Cash flows from investing activitiesPurchase of property, plant and equipment
    
    
    (13,930
    )
    
    
    (13,484
    )Purchase of business, net of cash acquired
    
    
    (781
    )
    
    
    (750,853
    )Disposal of business
    
    
    21,675
    
    
    
    Purchase of investments in technology
    
    
    
    
    
    
    (28,075
    )Purchase of other intangibles
    
    
    (379
    )
    
    
    (1,020
    )Purchase of short-term investments
    
    
    (14,137
    )
    
    
    (139
    )Sale of short-term investments
    
    
    14,010
    
    
    
    15,189Net cash provided by (used in) investing activities
    
    
    6,458
    
    
    
    (778,382
    )Cash flows from financing activitiesProceeds from issuance of convertible notes, net of issuance costs
    
    
    
    
    
    
    361,218Proceeds from senior secured credit facility, net of issuance costs
    
    
    
    
    
    
    352,754Issuance of common stock
    
    
    10,059
    
    
    
    8,321Excess tax benefit from exercise of stock options
    
    
    213
    
    
    
    1,515Proceeds from short-term borrowings
    
    
    
    
    
    
    25,000Repayments of short-term borrowings
    
    
    
    
    
    
    (25,000
    )Payments on long-term debt
    
    
    (48,919
    )
    
    
    Financing charges paid on credit facility
    
    
    
    
    
    
    (6,955
    )Net cash (used in) provided by financing activities
    
    
    (38,647
    )
    
    
    716,853Cash (used in) provided by continuing operations
    
    
    (4,385
    )
    
    
    3,145Cash used in discontinued operationsOperating activities
    
    
    (691
    )
    
    
    (672
    )Cash used in discontinued operations
    
    
    (691
    )
    
    
    (672
    )Effect of currency exchange rates on cash
    
    
    (363
    )
    
    
    719Net (decrease) increase in cash and cash equivalents
    
    
    (5,439
    )
    
    
    3,192Cash and cash equivalents at beginning of period
    
    
    29,051
    
    
    
    30,885Cash and cash equivalents at end of period
    
    $
    23,612
    
    
    $
    34,077Supplemental disclosureCash paid for interest
    
    $
    20,891
    
    
    $
    935Cash (refunded) paid for taxes
    
    $
    (11,211
    )
    
    $
    16,798Stock issued to settle contingent liabilities under InnovaQuartz purchase agreement
    
    $
    7,371
    
    
    $
    
 The accompanying notes are an integral part of the consolidated financial statements.
 5




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##### Table of Contents



AMERICAN MEDICAL SYSTEMS HOLDINGS, INC.
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  NOTE 1. Basis of Presentation
     NOTE 2. Acquisitions
 Laserscope
    Note 3, Discontinued
Operations and Sale of Aesthetics Business
 6




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##### Table of Contents



Financing
 Note 12, Debt.
 Purchase Accounting
  (in thousands)
    
    AmountDeveloped and core technology
    
    $
    88,700Trademarks
    
    
    40,800In-process research and development
    
    
    62,100Assets sold, net of tax
    
    
    14,781Tangible assets acquired, net of liabilities assumed
    
    
    11,769Deferred tax liability on assets acquired, net of deferred tax assets
    
    
    (17,976
    )Goodwill
    
    
    529,643Estimated fair value of identifiable tangible and intangible assets
and goodwill, net of cash acquired and liabilites assumed
    
    $
    729,817
   Restructuring Costs
  7




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##### Table of Contents



Restructuring
    
    
    
    
    
    
    
    
    
    
    RestructuringLiability as of
    
    
    Adjustment to
    
    
    Cash Payments /
    
    
    Liability as of(in thousands)
    
    December 30, 2006
    
    
    Liability
    
    
    Settlements
    
    
    September 29, 2007Severance and benefits
    
    $
    7,204
    
    
    $
    (1,069
    )
    
    $
    (5,605
    )
    
    $
    530Contract terminations and other
    
    
    1,993
    
    
    
    6,978
    
    
    
    (3,703
    )
    
    
    5,268Total restructuring
    
    $
    9,197
    
    
    $
    5,909
    
    
    $
    (9,308
    )
    
    $
    5,798
 Integration Costs
   Three Months Ended
    
    
    Nine Months Ended(in thousands except per share data)
    
    September 30, 2006
    
    
    September 30, 2006Revenues from continuing operations
    
    $
    94,750
    
    
    $
    291,786Revenues from discontinued operations
    
    
    6,484
    
    
    
    23,834Total revenues
    
    $
    101,234
    
    
    
    315,620Net loss
    
    $
    3,338
    
    
    $
    4,453Net loss per share:Basic
    
    $
    0.05
    
    
    $
    0.06Diluted
    
    $
    0.05
    
    
    $
    0.06
  Solarant Medical, Inc.
   8




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##### Table of Contents



(in thousands)
    
    AmountIn-process research and development (including $0.8 million in acquisition costs)
    
    $
    2,054Liabilities assumed, net of tangible assets acquired
    
    
    (88
    )Deferred tax asset acquired
    
    
    981Initial purchase price, net of cash acquired through September 29, 2007
    
    $
    2,947
 Goodwill and Other Intangible Assets
  BioControl Medical, Ltd.
  Goodwill and Other Intangible Assets
    Ovion Inc.
  9




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##### Table of Contents



Ovion
   (in thousands)
    
    AmountIn-process research and development (including $0.7 million in acquisition costs)
    
    $
    13,554Intangible royalty agreement (including $0.2 million in acquisition costs)
    
    
    2,970Liabilities assumed, net of tangible assets acquired
    
    
    (732
    )Deferred tax liability on assets acquired
    
    
    (385
    )Initial purchase price, net of cash acquired through September 29, 2007
    
    $
    15,407
 Goodwill and Other Intangible Assets
  NOTE 3. Discontinued Operations and Sale of Aesthetics Business
 Note 2, Acquisitions
  10




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##### Table of Contents



Accounting for
the Impairment or Disposal of Long-Lived Assets
  Three Months Ended
    
    
    Nine Months Ended(in thousands)
    
    September 29, 2007
    
    
    September 30, 2006
    
    
    September 29, 2007
    
    
    September 30, 2006Net sales
    
    $
    
    
    
    $
    5,672
    
    
    $
    515
    
    
    $
    5,672Loss from discontinued operations before income taxes
    
    
    
    
    
    
    (1,082
    )
    
    
    (1,075
    )
    
    
    (1,082
    )Income tax benefit
    
    
    
    
    
    
    410
    
    
    
    384
    
    
    
    410Loss from discontinued operations, net of taxes
    
    $
    
    
    
    $
    (672
    )
    
    $
    (691
    )
    
    $
    (672
    )
  Allocation of Interest to
Discontinued Operations
   Applying the Conditions
in Paragraph 42 of FASB Statement No. 144 in Determining Whether to Report Discontinued Operations
 NOTE 4. Stock-Based Compensation
 Share-Based
Payment
 11




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##### Table of Contents



Three Months Ended
    
    
    Nine Months Ended(in thousands)
    
    September 29, 2007
    
    
    September 30, 2006
    
    
    September 29, 2007
    
    
    September 30, 2006Cost of sales
    
    $
    364
    
    
    $
    96
    
    
    $
    1,140
    
    
    $
    251Marketing and selling
    
    
    1,070
    
    
    
    703
    
    
    
    3,154
    
    
    
    2,454Research and development
    
    
    677
    
    
    
    471
    
    
    
    2,080
    
    
    
    1,505General and administrative
    
    
    1,265
    
    
    
    633
    
    
    
    2,768
    
    
    
    2,770Total stock-based compensation expense
    
    $
    3,376
    
    
    $
    1,903
    
    
    $
    9,142
    
    
    $
    6,980
     Weighted average
    
    
    AggregateOptions
    
    
    exercise price
    
    
    Intrinsicoutstanding
    
    
    per share
    
    
    Value(in thousands)Balance at December 30, 2006
    
    
    7,255,574
    
    
    $
    14.25Granted
    
    
    1,124,000
    
    
    
    19.75Exercised
    
    
    (586,172
    )
    
    
    14.00Cancelled or expired
    
    
    (392,068
    )
    
    
    18.59Balance at September 29, 2007
    
    
    7,401,334
    
    
    $
    14.88
    
    
    $
    25,831Options exercisable at September 29, 2007
    
    
    4,505,537
    
    
    $
    12.08
    
    
    $
    25,482
   Three Months Ended
    
    Nine Months EndedSeptember 29, 2007
    
    September 30, 2006
    
    September 29, 2007
    
    September 30, 2006Fair value of options granted
    
    $
    6.29
    
    
    $
    7.14
    
    
    $
    7.08
    
    
    $
    7.50Risk free interest rate
    
    
    4.38
    %
    
    
    4.92
    %
    
    
    4.68
    %
    
    
    4.73
    %Expected dividend rate
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Stock price volatility
    
    
    30.89
    %
    
    
    35.16
    %
    
    
    32.95
    %
    
    
    35.25
    %Expected life of option
    
    4.3 years
    
    5.1 years
    
    4.7 years
    
    4.7 years
  12




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##### Table of Contents



Restricted Stock
  Employee Stock Purchase Plan
  NOTE 5. Earnings per Share
  Three Months Ended
    
    
    Nine Months Ended(in thousands, except per share data)
    
    September 29, 2007
    
    
    September 30, 2006
    
    
    September 29, 2007
    
    
    September 30, 2006Net income (loss) from continuing operations
    
    $
    6,925
    
    
    $
    (57,932
    )
    
    $
    18,634
    
    
    $
    (54,555
    )Weighted-average shares
outstanding for basic net income per share
    
    
    72,166
    
    
    
    70,122
    
    
    
    72,001
    
    
    
    69,877Dilutive effect of stock options
and restricted shares
    
    
    1,574
    
    
    
    
    
    
    
    1,604
    
    
    
    Adjusted weighted-average shares outstanding for
diluted net income per share
    
    
    73,740
    
    
    
    70,122
    
    
    
    73,605
    
    
    
    69,877Net income (loss) per shareBasic net earnings (loss) from continuing
operations
    
    $
    0.10
    
    
    $
    (0.83
    )
    
    $
    0.26
    
    
    $
    (0.78
    )Diluted net earnings (loss) from
continuing operations
    
    $
    0.09
    
    
    $
    (0.83
    )
    
    $
    0.25
    
    
    $
    (0.78
    )
  NOTE 6. Inventories
  (in thousands)
    
    September 29, 2007
    
    December 30, 2006Raw materials
    
    $
    18,896
    
    
    $
    13,321Work in process
    
    
    8,062
    
    
    
    10,878Finished goods
    
    
    35,989
    
    
    
    16,279Obsolescence reserve
    
    
    (3,063
    )
    
    
    (2,504
    )Net inventories
    
    $
    59,884
    
    
    $
    37,974
 13




---



##### Table of Contents



NOTE 7. Warranties
   Three Months Ended
    
    
    Nine Months Ended(in thousands)
    
    September 29, 2007
    
    
    September 30, 2006
    
    
    September 29, 2007
    
    
    September 30, 2006Balance, beginning of period
    
    $
    2,808
    
    
    $
    1,774
    
    
    $
    2,715
    
    
    $
    1,618Provisions for warranty
    
    
    1,904
    
    
    
    631
    
    
    
    4,418
    
    
    
    938Warranty allowance from acquisition
    
    
    
    
    
    
    840
    
    
    
    
    
    
    
    840Claims processed
    
    
    (1,118
    )
    
    
    (337
    )
    
    
    (3,539
    )
    
    
    (488
    )Balance, end of period
    
    $
    3,594
    
    
    $
    2,908
    
    
    $
    3,594
    
    
    $
    2,908
 NOTE 8. Comprehensive Income (Loss)
  Three Months Ended
    
    Nine Months Ended(in thousands)
    
    September 29, 2007
    
    September 30, 2006
    
    September 29, 2007
    
    September 30, 2006Net income (loss)
    
    $
    6,925
    
    
    $
    (58,604
    )
    
    $
    17,943
    
    
    $
    (55,227
    )Foreign currency
translation gain (loss),
net of taxes
    
    
    1,705
    
    
    
    (392
    )
    
    
    2,947
    
    
    
    (1,465
    )Comprehensive income (loss)
    
    $
    8,630
    
    
    $
    (58,996
    )
    
    $
    20,890
    
    
    $
    (56,692
    )
 NOTE 9. Industry Segment Information and Foreign Operations
 Note 3,
Discontinued Operations and Sale of Aesthetics Business)
   Three Months Ended
    
    Nine Months Ended(in thousands)
    
    September 29, 2007
    
    September 30, 2006
    
    September 29, 2007
    
    September 30, 2006United StatesNet sales
    
    $
    78,992
    
    
    $
    70,466
    
    
    $
    243,068
    
    
    $
    187,489Long-lived assets
    
    
    891,744
    
    
    
    871,313
    
    
    
    891,744
    
    
    
    871,313InternationalNet sales
    
    
    30,049
    
    
    
    20,034
    
    
    
    90,811
    
    
    
    55,417Long-lived assets
    
    
    17,857
    
    
    
    15,005
    
    
    
    17,857
    
    
    
    15,005
 14




---



##### Table of Contents



NOTE 10. Goodwill and Intangible Assets
  Nine Months Ended(in thousands)
    
    September 29, 2007Goodwill, beginning of the period
    
    $
    677,053Additions and adjustments
    
    
    24,248Effect of currency translation
    
    
    1,218Goodwill, end of the period
    
    $
    702,519
   September 29, 2007
    
    December 30, 2006Gross carrying
    
    Accumulated
    
    Net book
    
    Gross carrying
    
    Accumulated
    
    Net book(in thousands)
    
    amount
    
    amortization
    
    value
    
    amount
    
    amortization
    
    valueDeveloped and core technology
    
    $
    137,675
    
    
    $
    (39,350
    )
    
    $
    98,325
    
    
    $
    137,553
    
    
    $
    (26,919
    )
    
    $
    110,634Other intangiblesAmortizedPatents
    
    
    10,313
    
    
    
    (8,911
    )
    
    
    1,402
    
    
    
    10,127
    
    
    
    (8,761
    )
    
    
    1,366Licenses
    
    
    9,158
    
    
    
    (6,222
    )
    
    
    2,936
    
    
    
    8,962
    
    
    
    (5,453
    )
    
    
    3,509Royalty agreement
    
    
    2,970
    
    
    
    (671
    )
    
    
    2,299
    
    
    
    2,970
    
    
    
    (385
    )
    
    
    2,585Trademarks
    
    
    2,208
    
    
    
    (776
    )
    
    
    1,432
    
    
    
    
    
    
    
    
    
    
    
    Total
amortized other
intangible assets
    
    
    24,649
    
    
    
    (16,580
    )
    
    
    8,069
    
    
    
    22,059
    
    
    
    (14,599
    )
    
    
    7,460UnamortizedTrademarks
    
    
    40,800
    
    
    
    
    
    
    
    40,800
    
    
    
    42,562
    
    
    
    
    
    
    
    42,562Total other intangibles
    
    
    65,449
    
    
    
    (16,580
    )
    
    
    48,869
    
    
    
    64,621
    
    
    
    (14,599
    )
    
    
    50,022Total intangible assets
    
    $
    203,124
    
    
    $
    (55,930
    )
    
    $
    147,194
    
    
    $
    202,174
    
    
    $
    (41,518
    )
    
    $
    160,656
 Three Months Ended
    
    Nine Months Ended(in thousands)
    
    September 29, 2007
    
    September 30, 2006
    
    September 29, 2007
    
    September 30, 2006Amortization expense
    
    $
    4,516
    
    
    $
    5,172
    
    
    $
    13,969
    
    
    $
    8,798
  NOTE 11. Credit Agreements
 Credit Agreement
 Note 12, Debt
 Note 12, Debt
 15




---



##### Table of Contents



Bridge Loan Commitment Fee
  NOTE 12. Debt; Amendment of Credit Facility (Subsequent Event)
 Senior Secured Credit Facility
       16




---



##### Table of Contents



Amendment of Credit Facility (Subsequent Event)
   Total Leverage Ratio
 Fiscal Quarter Ending
    
    12/31/07
    
    3/31/08
    
    6/30/08
    
    9/30/08
    
    12/31/08
    
    3/31/09
    
    6/30/09Original Covenant
    
    
    5.00
    
    
    
    4.75
    
    
    
    4.50
    
    
    
    4.25
    
    
    
    4.00
    
    
    
    4.00
    
    
    
    3.75Amended Covenant
    
    
    5.50
    
    
    
    5.25
    
    
    
    5.00
    
    
    
    4.75
    
    
    
    4.50
    
    
    
    4.25
    
    
    
    4.00
 Interest Coverage Ratio
 Fiscal Quarter Ending
    
    12/31/07
    
    3/31/08
    
    
    
    9/30/08Original Covenant
    
    
    3.50
    
    
    
    3.50
    
    
    
    
    
    
    
    3.75Amended Covenant
    
    
    3.25
    
    
    
    3.25
    
    
    
    
    
    
    
    3.50
 Fixed Charge Coverage Ratio
 Fiscal Quarter Ending
    
    
    
    
    
    
    
    9/30/08
    
    12/31/08Original Covenant
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1.50
    
    
    
    1.50Amended Covenant
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1.40
    
    
    
    1.40
 Maximum Consolidated Capital Expenditures
 Fiscal Year Ending
    
    12/31/07Original Limit
    
    $
    15.0MAmended Limit
    
    $
    16.5M
 Convertible Senior Subordinated Notes; Supplemental Guarantor Information
   17




---



##### Table of Contents



18




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##### Table of Contents



American Medical Systems Holdings, Inc.
Notes to Consolidated Financial Statements  (Continued)
Condensed Consolidating Statement of Operations
 Three Months Ended September 29, 2007AmericanMedical
    
    
    
    
    
    
    Non-Systems
    
    
    Guarantor
    
    
    Guarantor
    
    
    
    
    
    
    ConsolidatedHoldings, Inc.
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    TotalNet sales
    
    $
    
    
    
    $
    102,208
    
    
    $
    21,904
    
    
    $
    (15,071
    )
    
    $
    109,041Cost of sales
    
    
    
    
    
    
    24,148
    
    
    
    15,159
    
    
    
    (14,866
    )
    
    
    24,441Gross profit
    
    
    
    
    
    
    78,060
    
    
    
    6,745
    
    
    
    (205
    )
    
    
    84,600Operating expensesMarketing and selling
    
    
    
    
    
    
    35,206
    
    
    
    7,072
    
    
    
    
    
    
    
    42,278Research and development
    
    
    
    
    
    
    9,757
    
    
    
    161
    
    
    
    
    
    
    
    9,918General and administrative
    
    
    
    
    
    
    10,116
    
    
    
    12
    
    
    
    
    
    
    
    10,128Integration costs
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Amortization of intangibles
    
    
    
    
    
    
    3,646
    
    
    
    870
    
    
    
    
    
    
    
    4,516Total operating expenses
    
    
    
    
    
    
    58,725
    
    
    
    8,115
    
    
    
    
    
    
    
    66,840Operating income (loss)
    
    
    
    
    
    
    19,335
    
    
    
    (1,370
    )
    
    
    (205
    )
    
    
    17,760Other (expense) incomeRoyalty income
    
    
    
    
    
    
    3,482
    
    
    
    
    
    
    
    
    
    
    
    3,482Interest income
    
    
    
    
    
    
    473
    
    
    
    14
    
    
    
    (154
    )
    
    
    333Interest expense
    
    
    (3,037
    )
    
    
    (6,376
    )
    
    
    (196
    )
    
    
    149
    
    
    
    (9,460
    )Financing charge
    
    
    (105
    )
    
    
    (1,025
    )
    
    
    
    
    
    
    
    
    
    
    (1,130
    )Other income (expense)
    
    
    
    
    
    
    525
    
    
    
    195
    
    
    
    16
    
    
    
    736Total other (expense) income
    
    
    (3,142
    )
    
    
    (2,921
    )
    
    
    13
    
    
    
    11
    
    
    
    (6,039
    )(Loss) income before income taxes
    
    
    (3,142
    )
    
    
    16,414
    
    
    
    (1,357
    )
    
    
    (194
    )
    
    
    11,721Provision for income taxes
    
    
    (1,286
    )
    
    
    6,716
    
    
    
    (555
    )
    
    
    (79
    )
    
    
    4,796Equity in earnings of subsidiary
    
    
    8,896
    
    
    
    (802
    )
    
    
    
    
    
    
    (8,094
    )
    
    
    Net income (loss)
    
    $
    7,040
    
    
    $
    8,896
    
    
    $
    (802
    )
    
    $
    (8,209
    )
    
    $
    6,925
 19




---



##### Table of Contents



American Medical Systems Holdings, Inc.
Notes to Consolidated Financial Statements  (Continued)
Condensed Consolidating Statement of Operations
 Nine Months Ended September 29, 2007AmericanMedical
    
    
    
    
    
    
    Non-Systems
    
    
    Guarantor
    
    
    Guarantor
    
    
    
    
    
    
    ConsolidatedHoldings, Inc.
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    TotalNet sales
    
    $
    
    
    
    $
    306,997
    
    
    $
    67,988
    
    
    $
    (41,106
    )
    
    $
    333,879Cost of sales
    
    
    
    
    
    
    75,939
    
    
    
    42,582
    
    
    
    (40,596
    )
    
    
    77,925Gross profit
    
    
    
    
    
    
    231,058
    
    
    
    25,406
    
    
    
    (510
    )
    
    
    255,954Operating expensesMarketing and selling
    
    
    
    
    
    
    99,790
    
    
    
    23,612
    
    
    
    
    
    
    
    123,402Research and development
    
    
    
    
    
    
    31,797
    
    
    
    250
    
    
    
    
    
    
    
    32,047General and administrative
    
    
    
    
    
    
    31,631
    
    
    
    73
    
    
    
    
    
    
    
    31,704Integration costs
    
    
    
    
    
    
    1,103
    
    
    
    
    
    
    
    
    
    
    
    1,103Amortization of intangibles
    
    
    
    
    
    
    11,359
    
    
    
    2,610
    
    
    
    
    
    
    
    13,969Total operating expenses
    
    
    
    
    
    
    175,680
    
    
    
    26,545
    
    
    
    
    
    
    
    202,225Operating income (loss)
    
    
    
    
    
    
    55,378
    
    
    
    (1,139
    )
    
    
    (510
    )
    
    
    53,729Other (expense) incomeRoyalty income
    
    
    
    
    
    
    4,664
    
    
    
    
    
    
    
    
    
    
    
    4,664Interest income
    
    
    
    
    
    
    1,077
    
    
    
    39
    
    
    
    (154
    )
    
    
    962Interest expense
    
    
    (8,952
    )
    
    
    (19,376
    )
    
    
    (502
    )
    
    
    149
    
    
    
    (28,681
    )Financing charge
    
    
    (420
    )
    
    
    (2,247
    )
    
    
    
    
    
    
    
    
    
    
    (2,667
    )Other income (expense)
    
    
    
    
    
    
    2,751
    
    
    
    (52
    )
    
    
    11
    
    
    
    2,710Total other (expense) income
    
    
    (9,372
    )
    
    
    (13,131
    )
    
    
    (515
    )
    
    
    6
    
    
    
    (23,012
    )(Loss) income from continuing operations
before income taxes
    
    
    (9,372
    )
    
    
    42,247
    
    
    
    (1,654
    )
    
    
    (504
    )
    
    
    30,717Provision for income taxes
    
    
    (3,659
    )
    
    
    16,590
    
    
    
    (661
    )
    
    
    (187
    )
    
    
    12,083Net (loss) income from continuing operations
    
    
    (5,713
    )
    
    
    25,657
    
    
    
    (993
    )
    
    
    (317
    )
    
    
    18,634Loss from discontinued operations, net of tax
    
    
    
    
    
    
    (691
    )
    
    
    
    
    
    
    
    
    
    
    (691
    )Equity in earnings (loss) of subsidiary
    
    
    23,973
    
    
    
    (993
    )
    
    
    
    
    
    
    (22,980
    )
    
    
    Net income (loss)
    
    $
    18,260
    
    
    $
    23,973
    
    
    $
    (993
    )
    
    $
    (23,297
    )
    
    $
    17,943
 20




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##### Table of Contents



American Medical Systems Holdings, Inc.
Notes to Consolidated Financial Statements  (Continued)
Condensed Consolidating Statement of Operations
 Three Months Ended September 30, 2006AmericanMedical
    
    
    
    
    
    
    Non-Systems
    
    
    Guarantor
    
    
    Guarantor
    
    
    
    
    
    
    ConsolidatedHoldings, Inc.
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    TotalNet sales
    
    $
    
    
    
    $
    85,005
    
    
    $
    12,404
    
    
    $
    (6,909
    )
    
    $
    90,500Cost of sales
    
    
    
    
    
    
    18,950
    
    
    
    7,086
    
    
    
    (7,171
    )
    
    
    18,865Gross profit
    
    
    
    
    
    
    66,055
    
    
    
    5,318
    
    
    
    262
    
    
    
    71,635Operating expensesMarketing and selling
    
    
    
    
    
    
    25,887
    
    
    
    5,578
    
    
    
    
    
    
    
    31,465Research and development
    
    
    
    
    
    
    9,295
    
    
    
    
    
    
    
    
    
    
    
    9,295In-process research and development
    
    
    
    
    
    
    61,500
    
    
    
    
    
    
    
    
    
    
    
    61,500General and administrative
    
    
    
    
    
    
    8,507
    
    
    
    45
    
    
    
    
    
    
    
    8,552Integration costs
    
    
    
    
    
    
    273
    
    
    
    
    
    
    
    
    
    
    
    273Amortization of intangibles
    
    
    
    
    
    
    4,290
    
    
    
    882
    
    
    
    
    
    
    
    5,172Total operating expenses
    
    
    
    
    
    
    109,752
    
    
    
    6,505
    
    
    
    
    
    
    
    116,257Operating (loss) income
    
    
    
    
    
    
    (43,697
    )
    
    
    (1,187
    )
    
    
    262
    
    
    
    (44,622
    )Other (expense) incomeRoyalty income
    
    
    
    
    
    
    479
    
    
    
    
    
    
    
    
    
    
    
    479Interest income
    
    
    
    
    
    
    1,034
    
    
    
    330
    
    
    
    
    
    
    
    1,364Interest expense
    
    
    (3,321
    )
    
    
    (5,122
    )
    
    
    (465
    )
    
    
    1
    
    
    
    (8,907
    )Financing charges
    
    
    (110
    )
    
    
    (381
    )
    
    
    
    
    
    
    
    
    
    
    (491
    )Other income (expense)
    
    
    
    
    
    
    156
    
    
    
    (49
    )
    
    
    
    
    
    
    107Total other (expense) income
    
    
    (3,431
    )
    
    
    (3,834
    )
    
    
    (184
    )
    
    
    1
    
    
    
    (7,448
    )(Loss) income from continuing operations
before income taxes
    
    
    (3,431
    )
    
    
    (47,531
    )
    
    
    (1,371
    )
    
    
    263
    
    
    
    (52,070
    )Provision for income taxes
    
    
    (1,174
    )
    
    
    4,575
    
    
    
    2,353
    
    
    
    108
    
    
    
    5,862Net (loss) income from continuing operations
    
    
    (2,257
    )
    
    
    (52,106
    )
    
    
    (3,724
    )
    
    
    155
    
    
    
    (57,932
    )Loss from discontinued operations, net of tax
    
    
    
    
    
    
    (672
    )
    
    
    
    
    
    
    
    
    
    
    (672
    )Equity in (loss) earnings of subsidiary
    
    
    (56,502
    )
    
    
    (3,724
    )
    
    
    
    
    
    
    60,226
    
    
    
    Net (loss) income
    
    $
    (58,759
    )
    
    $
    (56,502
    )
    
    $
    (3,724
    )
    
    $
    60,381
    
    
    $
    (58,604
    )
 21




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##### Table of Contents



American Medical Systems Holdings, Inc.
Notes to Consolidated Financial Statements  (Continued)
Condensed Consolidating Statement of Operations
 Nine Months Ended September 30, 2006AmericanMedical
    
    
    
    
    
    
    Non-Systems
    
    
    Guarantor
    
    
    Guarantor
    
    
    
    
    
    
    ConsolidatedHoldings, Inc.
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    TotalNet sales
    
    $
    
    
    
    $
    227,589
    
    
    $
    42,880
    
    
    $
    (27,563
    )
    
    $
    242,906Cost of sales
    
    
    
    
    
    
    42,644
    
    
    
    26,634
    
    
    
    (26,976
    )
    
    
    42,302Gross profit
    
    
    
    
    
    
    184,945
    
    
    
    16,246
    
    
    
    (587
    )
    
    
    200,604Operating expensesMarketing and selling
    
    
    
    
    
    
    72,218
    
    
    
    16,431
    
    
    
    
    
    
    
    88,649Research and development
    
    
    
    
    
    
    22,849
    
    
    
    
    
    
    
    
    
    
    
    22,849In-process research and
development
    
    
    
    
    
    
    87,113
    
    
    
    2,462
    
    
    
    
    
    
    
    89,575General and administrative
    
    
    
    
    
    
    22,597
    
    
    
    84
    
    
    
    
    
    
    
    22,681Integration costs
    
    
    
    
    
    
    273
    
    
    
    
    
    
    
    
    
    
    
    273Amortization of intangibles
    
    
    
    
    
    
    5,986
    
    
    
    2,812
    
    
    
    
    
    
    
    8,798Total operating expenses
    
    
    
    
    
    
    211,036
    
    
    
    21,789
    
    
    
    
    
    
    
    232,825Operating loss
    
    
    
    
    
    
    (26,091
    )
    
    
    (5,543
    )
    
    
    (587
    )
    
    
    (32,221
    )Other (expense) incomeRoyalty income
    
    
    
    
    
    
    1,340
    
    
    
    
    
    
    
    
    
    
    
    1,340Interest income
    
    
    
    
    
    
    2,077
    
    
    
    43
    
    
    
    
    
    
    
    2,120Interest expense
    
    
    (3,324
    )
    
    
    (5,500
    )
    
    
    (437
    )
    
    
    1
    
    
    
    (9,260
    )Financing charges
    
    
    (7,065
    )
    
    
    (381
    )
    
    
    
    
    
    
    
    
    
    
    (7,446
    )Other income (expense)
    
    
    
    
    
    
    551
    
    
    
    (163
    )
    
    
    9
    
    
    
    397Total other (expense) income
    
    
    (10,389
    )
    
    
    (1,913
    )
    
    
    (557
    )
    
    
    10
    
    
    
    (12,849
    )Loss from continuing operations before
income taxes
    
    
    (10,389
    )
    
    
    (28,004
    )
    
    
    (6,100
    )
    
    
    (577
    )
    
    
    (45,070
    )Provision for income taxes
    
    
    (3,832
    )
    
    
    13,964
    
    
    
    (434
    )
    
    
    (213
    )
    
    
    9,485Net loss from continuing operations
    
    
    (6,557
    )
    
    
    (41,968
    )
    
    
    (5,666
    )
    
    
    (364
    )
    
    
    (54,555
    )Loss from discontinued operations, net of tax
    
    
    
    
    
    
    (672
    )
    
    
    
    
    
    
    
    
    
    
    (672
    )Equity in earnings (loss) of subsidiary
    
    
    (48,306
    )
    
    
    (5,666
    )
    
    
    
    
    
    
    53,972
    
    
    
    Net (loss) income
    
    $
    (54,863
    )
    
    $
    (48,306
    )
    
    $
    (5,666
    )
    
    $
    53,608
    
    
    $
    (55,227
    )
 22




---



##### Table of Contents



American Medical Systems Holdings, Inc.
Notes to Consolidated Financial Statements  (Continued)
Condensed Consolidating Balance Sheet
 As of September 29, 2007AmericanMedical
    
    
    
    
    
    
    Non-Systems
    
    
    Guarantor
    
    
    Guarantor
    
    
    
    
    
    
    ConsolidatedHoldings, Inc.
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    TotalAssetsCurrent assetsCash and cash equivalents
    
    $
    479
    
    
    $
    13,481
    
    
    $
    9,652
    
    
    $
    
    
    
    $
    23,612Short term investments
    
    
    
    
    
    
    303
    
    
    
    336
    
    
    
    
    
    
    
    639Accounts receivable, net
    
    
    622,855
    
    
    
    68,728
    
    
    
    30,270
    
    
    
    (622,585
    )
    
    
    99,268Inventories, net
    
    
    
    
    
    
    58,528
    
    
    
    5,709
    
    
    
    (4,353
    )
    
    
    59,884Deferred income taxes
    
    
    
    
    
    
    10,374
    
    
    
    458
    
    
    
    
    
    
    
    10,832Other current assets
    
    
    8,624
    
    
    
    (2,882
    )
    
    
    3,990
    
    
    
    271
    
    
    
    10,003Total current assets
    
    
    631,958
    
    
    
    148,532
    
    
    
    50,415
    
    
    
    (626,667
    )
    
    
    204,238Property, plant and equipment, net
    
    
    
    
    
    
    53,962
    
    
    
    1,551
    
    
    
    
    
    
    
    55,513Goodwill
    
    
    
    
    
    
    640,608
    
    
    
    85,932
    
    
    
    (24,021
    )
    
    
    702,519Developed and core technology, net
    
    
    
    
    
    
    77,271
    
    
    
    21,054
    
    
    
    
    
    
    
    98,325Other intangibles, net
    
    
    
    
    
    
    46,570
    
    
    
    2,299
    
    
    
    
    
    
    
    48,869Investment in subsidiaries
    
    
    83,398
    
    
    
    24,943
    
    
    
    
    
    
    
    (108,341
    )
    
    
    Investment in technology and other assets
    
    
    
    
    
    
    1,643
    
    
    
    97
    
    
    
    
    
    
    
    1,740Other long-term assets, net
    
    
    1,357
    
    
    
    1,279
    
    
    
    
    
    
    
    
    
    
    
    2,636Total assets
    
    $
    716,713
    
    
    $
    994,808
    
    
    $
    161,348
    
    
    $
    (759,029
    )
    
    $
    1,113,840Liabilities and Stockholders EquityCurrent liabilitiesAccounts payable
    
    $
    21,246
    
    
    $
    524,015
    
    
    $
    101,365
    
    
    $
    (628,340
    )
    
    $
    18,286Accrued compensation expenses
    
    
    
    
    
    
    15,387
    
    
    
    2,538
    
    
    
    
    
    
    
    17,925Accrued warranty expense
    
    
    
    
    
    
    3,668
    
    
    
    (74
    )
    
    
    
    
    
    
    3,594Income taxes payable
    
    
    
    
    
    
    4,433
    
    
    
    (341
    )
    
    
    
    
    
    
    4,092Other accrued expenses
    
    
    3,037
    
    
    
    24,766
    
    
    
    2,553
    
    
    
    
    
    
    
    30,356Total current liabilities
    
    
    24,283
    
    
    
    572,269
    
    
    
    106,041
    
    
    
    (628,340
    )
    
    
    74,253Non-current liabilitiesLong-term debt
    
    
    363,010
    
    
    
    304,654
    
    
    
    
    
    
    
    
    
    
    
    667,664Intercompany loans payable
    
    
    
    
    
    
    
    
    
    
    22,348
    
    
    
    (22,348
    )
    
    
    Deferred income taxes
    
    
    
    
    
    
    21,744
    
    
    
    8,016
    
    
    
    
    
    
    
    29,760Long-term income taxes payable
    
    
    
    
    
    
    9,683
    
    
    
    
    
    
    
    
    
    
    
    9,683Long-term employee benefit obligations
    
    
    
    
    
    
    3,060
    
    
    
    
    
    
    
    
    
    
    
    3,060Total non-current liabilities
    
    
    363,010
    
    
    
    339,141
    
    
    
    30,364
    
    
    
    (22,348
    )
    
    
    710,167Total liabilities
    
    
    387,293
    
    
    
    911,410
    
    
    
    136,405
    
    
    
    (650,688
    )
    
    
    784,420Stockholders equityCommon stock
    
    
    722
    
    
    
    
    
    
    
    9
    
    
    
    (9
    )
    
    
    722Additional paid-in capital
    
    
    280,747
    
    
    
    3,424
    
    
    
    75,683
    
    
    
    (79,107
    )
    
    
    280,747Accumulated other comprehensive income
    
    
    7,102
    
    
    
    769
    
    
    
    7,082
    
    
    
    (7,851
    )
    
    
    7,102Retained earnings (deficit)
    
    
    40,849
    
    
    
    79,205
    
    
    
    (57,831
    )
    
    
    (21,374
    )
    
    
    40,849Total stockholders equity
    
    
    329,420
    
    
    
    83,398
    
    
    
    24,943
    
    
    
    (108,341
    )
    
    
    329,420Total liabilities and stockholders equity
    
    $
    716,713
    
    
    $
    994,808
    
    
    $
    161,348
    
    
    $
    (759,029
    )
    
    $
    1,113,840
 23




---



##### Table of Contents



American Medical Systems Holdings, Inc.
Notes to Consolidated Financial Statements  (Continued)
Condensed Consolidating Balance Sheet
 As of December 30, 2006AmericanMedical
    
    
    
    
    
    
    Non-Systems
    
    
    Guarantor
    
    
    Guarantor
    
    
    
    
    
    
    ConsolidatedHoldings, Inc.
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    TotalAssetsCurrent assetsCash and cash equivalents
    
    $
    1,138
    
    
    $
    22,905
    
    
    $
    5,008
    
    
    $
    
    
    
    $
    29,051Short term investments
    
    
    
    
    
    
    274
    
    
    
    216
    
    
    
    
    
    
    
    490Accounts receivable, net
    
    
    606,821
    
    
    
    71,346
    
    
    
    20,520
    
    
    
    (606,749
    )
    
    
    91,938Inventories, net
    
    
    
    
    
    
    36,472
    
    
    
    5,592
    
    
    
    (4,090
    )
    
    
    37,974Deferred income taxes
    
    
    
    
    
    
    10,608
    
    
    
    457
    
    
    
    
    
    
    
    11,065Other current assets
    
    
    4,965
    
    
    
    14,544
    
    
    
    2,220
    
    
    
    (157
    )
    
    
    21,572Assets of discontinued operations
    
    
    
    
    
    
    46,078
    
    
    
    
    
    
    
    
    
    
    
    46,078Total current assets
    
    
    612,924
    
    
    
    202,227
    
    
    
    34,013
    
    
    
    (610,996
    )
    
    
    238,168Property, plant and equipment, net
    
    
    
    
    
    
    46,454
    
    
    
    581
    
    
    
    
    
    
    
    47,035Goodwill
    
    
    
    
    
    
    593,641
    
    
    
    83,933
    
    
    
    (521
    )
    
    
    677,053Developed and core technology, net
    
    
    
    
    
    
    86,601
    
    
    
    24,033
    
    
    
    
    
    
    
    110,634Other intangibles, net
    
    
    
    
    
    
    71,591
    
    
    
    1,931
    
    
    
    (23,500
    )
    
    
    50,022Deferred income taxes
    
    
    
    
    
    
    
    
    
    
    1,804
    
    
    
    (1,804
    )
    
    
    Investment in subsidiaries
    
    
    59,073
    
    
    
    14,449
    
    
    
    
    
    
    
    (73,522
    )
    
    
    Investment in technology and other assets
    
    
    
    
    
    
    987
    
    
    
    161
    
    
    
    
    
    
    
    1,148Other long-term assets, net
    
    
    1,329
    
    
    
    1,702
    
    
    
    
    
    
    
    
    
    
    
    3,031Total assets
    
    $
    673,326
    
    
    $
    1,017,652
    
    
    $
    146,456
    
    
    $
    (710,343
    )
    
    $
    1,127,091Liabilities and Stockholders EquityCurrent liabilitiesAccounts payable
    
    $
    23,259
    
    
    $
    508,468
    
    
    $
    96,553
    
    
    $
    (612,850
    )
    
    $
    15,430Accrued compensation expenses
    
    
    
    
    
    
    15,433
    
    
    
    1,586
    
    
    
    
    
    
    
    17,019Accrued warranty expense
    
    
    
    
    
    
    2,715
    
    
    
    
    
    
    
    
    
    
    
    2,715Income taxes payable
    
    
    
    
    
    
    
    
    
    
    240
    
    
    
    (240
    )
    
    
    Other accrued expenses
    
    
    6,175
    
    
    
    39,835
    
    
    
    1,881
    
    
    
    
    
    
    
    47,891Liabilities of discontinued operations
    
    
    
    
    
    
    19,478
    
    
    
    
    
    
    
    
    
    
    
    19,478Total current liabilities
    
    
    29,434
    
    
    
    585,929
    
    
    
    100,260
    
    
    
    (613,090
    )
    
    
    102,533Non-current liabilitiesLong term debt
    
    
    362,730
    
    
    
    350,726
    
    
    
    
    
    
    
    
    
    
    
    713,456Intercompany loans payable
    
    
    
    
    
    
    
    
    
    
    21,927
    
    
    
    (21,927
    )
    
    
    Deferred income taxes
    
    
    
    
    
    
    14,280
    
    
    
    9,820
    
    
    
    (1,804
    )
    
    
    22,296Long-term income taxes payable
    
    
    
    
    
    
    4,584
    
    
    
    
    
    
    
    
    
    
    
    4,584Long-term employee benefit obligations
    
    
    
    
    
    
    3,060
    
    
    
    
    
    
    
    
    
    
    
    3,060Total non-current liabilities
    
    
    362,730
    
    
    
    372,650
    
    
    
    31,747
    
    
    
    (23,731
    )
    
    
    743,396Total liabilities
    
    
    392,164
    
    
    
    958,579
    
    
    
    132,007
    
    
    
    (636,821
    )
    
    
    845,929Stockholders equityCommon stock
    
    
    711
    
    
    
    
    
    
    
    9
    
    
    
    (9
    )
    
    
    711Additional paid-in capital
    
    
    253,127
    
    
    
    3,431
    
    
    
    67,332
    
    
    
    (70,763
    )
    
    
    253,127Accumulated other comprehensive income
    
    
    4,155
    
    
    
    146
    
    
    
    4,287
    
    
    
    (4,433
    )
    
    
    4,155Retained earnings (deficit)
    
    
    23,169
    
    
    
    55,496
    
    
    
    (57,179
    )
    
    
    1,683
    
    
    
    23,169Total stockholders equity
    
    
    281,162
    
    
    
    59,073
    
    
    
    14,449
    
    
    
    (73,522
    )
    
    
    281,162Total liabilities and stockholders equity
    
    $
    673,326
    
    
    $
    1,017,652
    
    
    $
    146,456
    
    
    $
    (710,343
    )
    
    $
    1,127,091
 24




---



##### Table of Contents



American Medical Systems Holdings, Inc.
Notes to Consolidated Financial Statements  (Continued)
Condensed Consolidating Statement of Cash Flows
 Nine Months Ended September 29, 2007AmericanMedical
    
    
    
    
    
    
    Non-Systems
    
    
    Guarantor
    
    
    Guarantor
    
    
    
    
    
    
    ConsolidatedHoldings, Inc.
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    TotalCash flows from operating activitiesNet cash (used in) provided by operating
activities
    
    $
    (10,931
    )
    
    $
    39,641
    
    
    $
    (906
    )
    
    $
    
    
    
    $
    27,804Cash flows from investing activitiesPurchase of property, plant and equipment
    
    
    
    
    
    
    (12,689
    )
    
    
    (1,241
    )
    
    
    
    
    
    
    (13,930
    )Purchase of business, net of cash acquired
    
    
    
    
    
    
    
    
    
    
    (781
    )
    
    
    
    
    
    
    (781
    )Disposal of business
    
    
    
    
    
    
    21,675
    
    
    
    
    
    
    
    
    
    
    
    21,675Purchase of other intangibles
    
    
    
    
    
    
    (379
    )
    
    
    
    
    
    
    
    
    
    
    (379
    )Purchase of short-term investments
    
    
    
    
    
    
    (14,028
    )
    
    
    (109
    )
    
    
    
    
    
    
    (14,137
    )Sale of short-term investments
    
    
    
    
    
    
    14,000
    
    
    
    10
    
    
    
    
    
    
    
    14,010Net cash provided by (used in) investing
activities
    
    
    
    
    
    
    8,579
    
    
    
    (2,121
    )
    
    
    
    
    
    
    6,458Cash flows from financing activitiesIntercompany notes
    
    
    
    
    
    
    300
    
    
    
    (300
    )
    
    
    
    
    
    
    Investment in subsidiary
    
    
    
    
    
    
    (8,334
    )
    
    
    8,334
    
    
    
    
    
    
    
    Issuance of common stock
    
    
    10,059
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10,059Excess tax benefit from exercise of stock
options
    
    
    213
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    213Payments on long-term debt
    
    
    
    
    
    
    (48,919
    )
    
    
    
    
    
    
    
    
    
    
    (48,919
    )Net cash provided by (used in) financing
activities
    
    
    10,272
    
    
    
    (56,953
    )
    
    
    8,034
    
    
    
    
    
    
    
    (38,647
    )Cash used in discontinued operationsOperating activities
    
    
    
    
    
    
    (691
    )
    
    
    
    
    
    
    
    
    
    
    (691
    )Net cash used in discontinued operations
    
    
    
    
    
    
    (691
    )
    
    
    
    
    
    
    
    
    
    
    (691
    )Effect of exchange rates on cash
    
    
    
    
    
    
    
    
    
    
    (363
    )
    
    
    
    
    
    
    (363
    )Net (decrease) increase in cash and cash equivalents
    
    
    (659
    )
    
    
    (9,424
    )
    
    
    4,644
    
    
    
    
    
    
    
    (5,439
    )Cash and cash equivalents at beginning of period
    
    
    1,138
    
    
    
    22,905
    
    
    
    5,008
    
    
    
    
    
    
    
    29,051Cash and cash equivalents at end of period
    
    $
    479
    
    
    $
    13,481
    
    
    $
    9,652
    
    
    $
    
    
    
    $
    23,612
 25




---



##### Table of Contents



American Medical Systems Holdings, Inc.
Notes to Consolidated Financial Statements  (Continued)
Condensed Consolidating Statement of Cash Flows
 Nine Months Ended September 30, 2006AmericanMedical
    
    
    
    
    
    
    Non-Systems
    
    
    Guarantor
    
    
    Guarantor
    
    
    
    
    
    
    ConsolidatedHoldings, Inc.
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    TotalCash flows from operating activitiesNet cash provided by operating activities
    
    $
    228
    
    
    $
    63,074
    
    
    $
    1,372
    
    
    $
    
    
    
    $
    64,674Cash flows from investing activitiesPurchase of property, plant and equipment
    
    
    
    
    
    
    (13,364
    )
    
    
    (120
    )
    
    
    
    
    
    
    (13,484
    )Purchase of business, net of cash acquired
    
    
    
    
    
    
    (750,853
    )
    
    
    
    
    
    
    
    
    
    
    (750,853
    )Purchase of investments in technology
    
    
    
    
    
    
    (25,613
    )
    
    
    (2,462
    )
    
    
    
    
    
    
    (28,075
    )Purchase of other intangibles
    
    
    
    
    
    
    (1,020
    )
    
    
    
    
    
    
    
    
    
    
    (1,020
    )Purchase of short-term investments
    
    
    
    
    
    
    (139
    )
    
    
    
    
    
    
    
    
    
    
    (139
    )Sale of short-term investments
    
    
    
    
    
    
    15,175
    
    
    
    14
    
    
    
    
    
    
    
    15,189Net cash used in investing activities
    
    
    
    
    
    
    (775,814
    )
    
    
    (2,568
    )
    
    
    
    
    
    
    (778,382
    )Cash flows from financing activitiesProceeds from issuance of convertible notes,
net of issuance costs
    
    
    361,218
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    361,218Proceeds from senior secured credit facility
net of issuance costs
    
    
    
    
    
    
    352,754
    
    
    
    
    
    
    
    
    
    
    
    352,754Intercompany notes
    
    
    (361,218
    )
    
    
    362,611
    
    
    
    (1,393
    )
    
    
    
    
    
    
    Issuance of common stock
    
    
    8,321
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,321Excess tax benefit from exercise of stock options
    
    
    1,515
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,515Proceeds from short-term borrowings
    
    
    21,000
    
    
    
    4,000
    
    
    
    
    
    
    
    
    
    
    
    25,000Repayments of short-term borrowings
    
    
    (21,000
    )
    
    
    (4,000
    )
    
    
    
    
    
    
    
    
    
    
    (25,000
    )Financing charges paid on credit facility
    
    
    (6,955
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (6,955
    )Net cash provided by (used in) financing
activities
    
    
    2,881
    
    
    
    715,365
    
    
    
    (1,393
    )
    
    
    
    
    
    
    716,853Cash used in discontinued operationsOperating activities
    
    
    
    
    
    
    (672
    )
    
    
    
    
    
    
    
    
    
    
    (672
    )Net cash used in discontinued operations
    
    
    
    
    
    
    (672
    )
    
    
    
    
    
    
    
    
    
    
    (672
    )Effect of exchange rates on cash
    
    
    
    
    
    
    
    
    
    
    719
    
    
    
    
    
    
    
    719Net increase (decrease) in cash and cash equivalents
    
    
    3,109
    
    
    
    1,953
    
    
    
    (1,870
    )
    
    
    
    
    
    
    3,192Cash and cash equivalents at beginning of period
    
    
    1,567
    
    
    
    21,751
    
    
    
    7,567
    
    
    
    
    
    
    
    30,885Cash and cash equivalents at end of period
    
    $
    4,676
    
    
    $
    23,704
    
    
    $
    5,697
    
    
    $
    
    
    
    $
    34,077
 26




---



##### Table of Contents



NOTE 13. Income Taxes
 Accounting for Uncertainty in Income
Taxesan interpretation of FASB Statement No. 109 Accounting for Income Taxes
        NOTE 14. Other Contingencies
 Her Option® Her Option
 27




---



##### Table of Contents



28




---



##### Table of Contents



ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 The following Managements Discussion and Analysis of Financial Condition and Results of Operations
contains forward-looking statements within the meaning of the Private Securities Litigation Reform
Act of 1995. Any statements not of historical fact may be considered forward-looking statements.
Written words such as may, expect, believe, anticipate, or estimate, or other variations
of these or similar words, identify such forward-looking statements. These statements by their
nature involve substantial risks and uncertainties, and actual results may differ materially from
those expressed in such forward-looking statements as a result of many factors, including, but not
limited to, those included on our Form 10-K , Part I, Item 1A for the year ended December 30, 2006,
as updated by Item 1A of our Form 10-Q for the quarter ended March 31, 2007. We undertake no
obligation to correct or update any forward-looking statements, whether as a result of new
information, future events, or otherwise. You are advised, however, to consult any future
disclosures we make on related subjects in future filings with the SEC.
 Critical Accounting Policies and Estimates
  Overview
  www.AmericanMedicalSystems.com.
 Laserscope Acquisition
   29




---



##### Table of Contents



Notes to Consolidated Financial Statements  No. 2, Acquisitions.
 Results of Operations
  Three Months Ended
    
    
    
    
    
    
    
    
    
    Nine Months Ended(in thousands)
    
    September 29, 2007
    
    September 30, 2006
    
    $ Increase
    
    % Increase
    
    September 29, 2007
    
    September 30, 2006
    
    $ Increase
    
    % IncreaseSalesMens health
    
    $
    73,916
    
    
    $
    60,446
    
    
    $
    13,470
    
    
    
    22.3
    %
    
    $
    225,854
    
    
    $
    151,016
    
    
    $
    74,838
    
    
    
    49.6
    %Womens health
    
    
    35,125
    
    
    
    30,054
    
    
    
    5,071
    
    
    
    16.9
    %
    
    
    108,025
    
    
    
    91,890
    
    
    
    16,135
    
    
    
    17.6
    %Total
    
    $
    109,041
    
    
    $
    90,500
    
    
    $
    18,541
    
    
    
    20.5
    %
    
    $
    333,879
    
    
    $
    242,906
    
    
    $
    90,973
    
    
    
    37.5
    %GeographyUnitedStates
    
    $
    78,992
    
    
    $
    70,466
    
    
    $
    8,526
    
    
    
    12.1
    %
    
    $
    243,068
    
    
    $
    187,489
    
    
    $
    55,579
    
    
    
    29.6
    %International
    
    
    30,049
    
    
    
    20,034
    
    
    
    10,015
    
    
    
    50.0
    %
    
    
    90,811
    
    
    
    55,417
    
    
    
    35,394
    
    
    
    63.9
    %Total
    
    $
    109,041
    
    
    $
    90,500
    
    
    $
    18,541
    
    
    
    20.5
    %
    
    $
    333,879
    
    
    $
    242,906
    
    
    $
    90,973
    
    
    
    37.5
    %Three Months Ended
    
    
    
    
    
    
    
    
    
    Nine Months EndedSeptember 29, 2007
    
    September 30, 2006
    
    
    
    
    
    
    
    
    
    September 29, 2007
    
    September 30, 2006Percent of total salesMens health
    
    
    67.8
    %
    
    
    66.8
    %
    
    
    
    
    
    
    
    
    
    
    67.6
    %
    
    
    62.2
    %Womens health
    
    
    32.2
    %
    
    
    33.2
    %
    
    
    
    
    
    
    
    
    
    
    32.4
    %
    
    
    37.8
    %Total
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    
    
    
    
    
    
    
    
    100.0
    %
    
    
    100.0
    %GeographyUnited States
    
    
    72.4
    %
    
    
    77.9
    %
    
    
    
    
    
    
    
    
    
    
    72.8
    %
    
    
    77.2
    %International
    
    
    27.6
    %
    
    
    22.1
    %
    
    
    
    
    
    
    
    
    
    
    27.2
    %
    
    
    22.8
    %Total
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    
    
    
    
    
    
    
    
    100.0
    %
    
    
    100.0
    %
 30




---



##### Table of Contents



Three Months Ended
    
    $ Increase
    
    % Increase
    
    Nine Months Ended
    
    $ Increase
    
    % Increase(in thousands)
    
    September 29, 2007
    
    September 30, 2006
    
    (Decrease)
    
    (Decrease)
    
    September 29, 2007
    
    September 30, 2006
    
    (Decrease)
    
    (Decrease)Net sales
    
    $
    109,041
    
    
    $
    90,500
    
    
    $
    18,541
    
    
    
    20.5
    %
    
    $
    333,879
    
    
    $
    242,906
    
    
    $
    90,973
    
    
    
    37.5
    %Cost of sales
    
    
    24,441
    
    
    
    18,865
    
    
    
    5,576
    
    
    
    29.6
    %
    
    
    77,925
    
    
    
    42,302
    
    
    
    35,623
    
    
    
    84.2
    %Gross profit
    
    
    84,600
    
    
    
    71,635
    
    
    
    12,965
    
    
    
    18.1
    %
    
    
    255,954
    
    
    
    200,604
    
    
    
    55,350
    
    
    
    27.6
    %Operating expensesMarketing and selling
    
    
    42,278
    
    
    
    31,465
    
    
    
    10,813
    
    
    
    34.4
    %
    
    
    123,402
    
    
    
    88,649
    
    
    
    34,753
    
    
    
    39.2
    %Research and development
    
    
    9,918
    
    
    
    9,295
    
    
    
    623
    
    
    
    6.7
    %
    
    
    32,047
    
    
    
    22,849
    
    
    
    9,198
    
    
    
    40.3
    %In-process research and development
    
    
    
    
    
    
    61,500
    
    
    
    (61,500
    )
    
    
    -100.0
    %
    
    
    
    
    
    
    89,575
    
    
    
    (89,575
    )
    
    
    -100.0
    %General and administrative
    
    
    10,128
    
    
    
    8,552
    
    
    
    1,576
    
    
    
    18.4
    %
    
    
    31,704
    
    
    
    22,681
    
    
    
    9,023
    
    
    
    39.8
    %Integration costs
    
    
    
    
    
    
    273
    
    
    
    (273
    )
    
    
    -100.0
    %
    
    
    1,103
    
    
    
    273
    
    
    
    830
    
    
    
    304.0
    %Amortization of intangibles
    
    
    4,516
    
    
    
    5,172
    
    
    
    (656
    )
    
    
    -12.7
    %
    
    
    13,969
    
    
    
    8,798
    
    
    
    5,171
    
    
    
    58.8
    %Total operating expenses
    
    
    66,840
    
    
    
    116,257
    
    
    
    (49,417
    )
    
    
    -42.5
    %
    
    
    202,225
    
    
    
    232,825
    
    
    
    (30,600
    )
    
    
    -13.1
    %Operating income (loss)
    
    
    17,760
    
    
    
    (44,622
    )
    
    
    62,382
    
    
    
    -139.8
    %
    
    
    53,729
    
    
    
    (32,221
    )
    
    
    85,950
    
    
    
    -266.8
    %Royalty income
    
    
    3,482
    
    
    
    479
    
    
    
    3,003
    
    
    
    626.9
    %
    
    
    4,664
    
    
    
    1,340
    
    
    
    3,324
    
    
    
    248.1
    %Interest income
    
    
    333
    
    
    
    1,364
    
    
    
    (1,031
    )
    
    
    -75.6
    %
    
    
    962
    
    
    
    2,120
    
    
    
    (1,158
    )
    
    
    -54.6
    %Interest expense
    
    
    (9,460
    )
    
    
    (8,907
    )
    
    
    (553
    )
    
    
    6.2
    %
    
    
    (28,681
    )
    
    
    (9,260
    )
    
    
    (19,421
    )
    
    
    209.7
    %Financing charges
    
    
    (1,130
    )
    
    
    (491
    )
    
    
    (639
    )
    
    
    130.1
    %
    
    
    (2,667
    )
    
    
    (7,446
    )
    
    
    4,779
    
    
    
    -64.2
    %Other income
    
    
    736
    
    
    
    107
    
    
    
    629
    
    
    
    587.9
    %
    
    
    2,710
    
    
    
    397
    
    
    
    2,313
    
    
    
    582.6
    %Income
(loss) from continuing operations before income taxes
    
    
    11,721
    
    
    
    (52,070
    )
    
    
    63,791
    
    
    
    -122.5
    %
    
    
    30,717
    
    
    
    (45,070
    )
    
    
    75,787
    
    
    
    -168.2
    %Provision for income taxes
    
    
    4,796
    
    
    
    5,862
    
    
    
    (1,066
    )
    
    
    -18.2
    %
    
    
    12,083
    
    
    
    9,485
    
    
    
    2,598
    
    
    
    27.4
    %Income (loss) from continuing operations
    
    
    6,925
    
    
    
    (57,932
    )
    
    
    64,857
    
    
    
    -112.0
    %
    
    
    18,634
    
    
    
    (54,555
    )
    
    
    73,189
    
    
    
    -134.2
    %Loss from discontinued operations,
net of tax
    
    
    
    
    
    
    (672
    )
    
    
    672
    
    
    
    -100.0
    %
    
    
    (691
    )
    
    
    (672
    )
    
    
    (19
    )
    
    
    2.8
    %Net income (loss)
    
    $
    6,925
    
    
    $
    (58,604
    )
    
    $
    65,529
    
    
    
    -111.8
    %
    
    $
    17,943
    
    
    $
    (55,227
    )
    
    $
    73,170
    
    
    
    -132.5
    %Percent of Sales
    
    
    
    
    
    
    
    
    
    Percent of SalesFor the Three Months Ended
    
    
    
    
    
    
    
    
    
    For the Nine Months EndedSeptember 29, 2007
    
    September 30, 2006
    
    
    
    
    
    
    
    
    
    September 29, 2007
    
    September 30, 2006Net sales
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    
    
    
    
    
    
    
    
    100.0
    %
    
    
    100.0
    %Cost of sales
    
    
    22.4
    %
    
    
    20.8
    %
    
    
    
    
    
    
    
    
    
    
    23.3
    %
    
    
    17.4
    %Gross profit
    
    
    77.6
    %
    
    
    79.2
    %
    
    
    
    
    
    
    
    
    
    
    76.7
    %
    
    
    82.6
    %Operating expensesMarketing and selling
    
    
    38.8
    %
    
    
    34.8
    %
    
    
    
    
    
    
    
    
    
    
    37.0
    %
    
    
    36.5
    %Research and development
    
    
    9.1
    %
    
    
    10.3
    %
    
    
    
    
    
    
    
    
    
    
    9.6
    %
    
    
    9.4
    %In-process research and development
    
    
    0.0
    %
    
    
    68.0
    %
    
    
    
    
    
    
    
    
    
    
    0.0
    %
    
    
    36.9
    %General and administrative
    
    
    9.3
    %
    
    
    9.4
    %
    
    
    
    
    
    
    
    
    
    
    9.5
    %
    
    
    9.3
    %Integration costs
    
    
    0.0
    %
    
    
    0.3
    %
    
    
    
    
    
    
    
    
    
    
    0.3
    %
    
    
    0.1
    %Amortization of intangibles
    
    
    4.1
    %
    
    
    5.7
    %
    
    
    
    
    
    
    
    
    
    
    4.2
    %
    
    
    3.6
    %Total operating expenses
    
    
    61.3
    %
    
    
    128.5
    %
    
    
    
    
    
    
    
    
    
    
    60.6
    %
    
    
    95.8
    %Operating income (loss)
    
    
    16.3
    %
    
    
    -49.3
    %
    
    
    
    
    
    
    
    
    
    
    16.1
    %
    
    
    -13.3
    %Royalty income
    
    
    3.2
    %
    
    
    0.5
    %
    
    
    
    
    
    
    
    
    
    
    1.4
    %
    
    
    0.6
    %Interest income
    
    
    0.3
    %
    
    
    1.5
    %
    
    
    
    
    
    
    
    
    
    
    0.3
    %
    
    
    0.9
    %Interest expense
    
    
    -8.7
    %
    
    
    -9.8
    %
    
    
    
    
    
    
    
    
    
    
    -8.6
    %
    
    
    -3.8
    %Financing charges
    
    
    -1.0
    %
    
    
    -0.5
    %
    
    
    
    
    
    
    
    
    
    
    -0.8
    %
    
    
    -3.1
    %Other income
    
    
    0.7
    %
    
    
    0.1
    %
    
    
    
    
    
    
    
    
    
    
    0.8
    %
    
    
    0.2
    %Income (loss) from continuing operations
before income taxes
    
    
    10.7
    %
    
    
    -57.5
    %
    
    
    
    
    
    
    
    
    
    
    9.2
    %
    
    
    -18.6
    %Provision for income taxes
    
    
    4.4
    %
    
    
    6.5
    %
    
    
    
    
    
    
    
    
    
    
    3.6
    %
    
    
    3.9
    %Income (loss) from continuing operations
    
    
    6.4
    %
    
    
    -64.0
    %
    
    
    
    
    
    
    
    
    
    
    5.6
    %
    
    
    -22.5
    %Loss from discontinued operations,
net of tax
    
    
    0.0
    %
    
    
    -0.7
    %
    
    
    
    
    
    
    
    
    
    
    -0.2
    %
    
    
    -0.3
    %Net income (loss)
    
    
    6.4
    %
    
    
    -64.8
    %
    
    
    
    
    
    
    
    
    
    
    5.4
    %
    
    
    -22.7
    %
 31




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##### Table of Contents



Comparison of the Three Months Ended September 29, 2007 to the Three Months Ended September 30,
2006
 Net sales. AdVance Male Sling AMS 700 MS MiniArc Single Incision Sling
 Net sales mens health products. TherMatrx® AMS 800 AMS 800 Inhibizone ® AdVance Male Sling AMS 700 AMS 700 LGX
 Net sales womens health products. MiniArc Monarc® Apogee® Perigee® Her
Option
 Net sales by geography and foreign exchange effects.
 Cost of sales
 Marketing and selling.
 Research and development. GreenLight High-Performance System (HPS)
 32




---



##### Table of Contents



In-process research and development. Notes to Consolidated Financial Statements  No. 2, Acquisitions
 General and administrative.
 Integration costs
 Amortization of intangibles. Notes to Consolidated Financial Statements  No. 2, Acquisitions.)
 Royalty income.
 Interest income.
 Interest expense.
  Financing charges.
 Other income
 Provision for income taxes.
 33




---



##### Table of Contents



Comparison of the Nine Months Ended September 29, 2007 to the Nine Months Ended September 30, 2006
 Net sales. AdVance Male Sling, AMS 700 MS MiniArc
 Net sales mens health products. TherMatrx AMS 700, Momentary Squeeze AMS 700 LGX AdVance Male Sling, AdVance Male Sling
 Net sales womens health products. Apogee Perigee Her Option MiniArc Monarc .
 Net sales by geography and foreign exchange effects.
 Cost of sales
 Marketing and selling.
 34




---



##### Table of Contents



Research and development. GreenLight HPS
 In-process research and development. ) Notes to Consolidated Financial Statements
 No. 2, Acquisitions
 General and administrative.
 Integration costs
 Amortization of intangibles. Notes
to Consolidated Financial Statements  No. 2, Acquisitions.)
 Royalty income.
 Interest income.
 Interest expense.
 Financing charges.
 Other income
 Provision for income taxes.
 35




---



##### Table of Contents



Liquidity and Capital Resources
  Cash flows from operating activities.
 Cash flows from investing activities.
 Cash flows from financing activities.
  36




---



##### Table of Contents



The number of shares issued uponIf the market price of our stock is:
    
    full conversion would be (1):$
    25.00
    
    
    4.3   million$
    30.00
    
    
    6.8   million$
    35.00
    
    
    8.6   million
 
 (1)
    
    The formula to calculate the shares issued upon full conversion of our Convertible Notes is as follows: (
    
    $373.8 million principal
    
    x
    
    Market price of stock at time of conversion
    
    
    
    $373.8 million
principal
    
    )
    
    =
    
    Shares issued
upon full
conversion$19.406 conversion priceMarket price of stock at time of conversion
     The number of common share equivalentsIf the average market
    
    potentially included in the computation of
    
    Percentprice of our stock is:
    
    diluted EPS would be (1):
    
    Dilution (2)$
19.00
    
    
    
    
    (anti-dilutive)
    
    
    0.0
    %$
25.00
    
    
    4.3
    
    million
    
    
    5.6
    %$
30.00
    
    
    6.8
    
    million
    
    
    8.6
    %$
35.00
    
    
    8.6
    
    million
    
    
    10.6
    %
 
 (1)
    
    Common share equivalents are calculated using the treasury stock method, in accordance with
EITF 90-19, Convertible Bonds with Issuer Option to Settle for Cash upon Conversion.(2)
    
    The percent dilution is based on 72,187,224 outstanding shares as of September 29, 2007.   37




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##### Table of Contents



38




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##### Table of Contents



For The Fiscal
    
    Original
    
    AmendedFinancial
    
    Periods Ending
    
    Required
    
    RequiredCovenants
    
    Closest to
    
    Ratio
    
    RatioTotal Leverage Ratio
    
    9/30/07
    
    5.50:1.00 (maximum)
    
    5.50:1.00 (maximum)12/31/07
    
    5.00:1.00
    
    5.50:1.003/31/08
    
    4.75:1.00
    
    5.25:1.006/30/08
    
    4.50:1.00
    
    5.00:1.009/30/08
    
    4.25:1.00
    
    4.75:1.0012/31/08
    
    4.00:1.00
    
    4.50:1.00Reductions
continuing until
6/30/10
    
    3.00:1.00
    
    3.00:1.00Senior Leverage Ratio
    
    9/30/07
    
    2.75:1.00 (maximum)
    
    2.75:1.00 (maximum)12/31/07
    
    2.50:1.00
    
    2.50:1.003/31/08
    
    2.50:1.00
    
    2.50:1.006/30/08
    
    2.50:1.00
    
    2.50:1.009/30/08
    
    2.50:1.00
    
    2.50:1.0012/31/08
    
    2.25:1.00
    
    2.25:1.00Reductions continuing until 3/31/09
    
    2.00:1.00
    
    2.00:1.00Interest Coverage Ratio
    
    9/30/07
    
    3.25:1.00 (minimum)
    
    3.25:1.00 (minimum)12/31/07
    
    3.50:1.00
    
    3.25:1.003/31/08
    
    3.50:1.00
    
    3.25:1.006/30/08
    
    3.50:1.00
    
    3.50:1.009/30/08
    
    3.75:1.00
    
    3.50:1.0012/31/08
    
    3.75:1.00
    
    3.75:1.00Increases
continuing until
9/30/09
    
    4.00:1.00
    
    4.00:1.00Fixed Charge Coverage Ratio
    
    9/30/07
    
    1.15:1.00 (minimum)
    
    1.15:1.00 (minimum)12/31/07
    
    1.25:1.00
    
    1.25:1.003/31/08
    
    1.25:1.00
    
    1.25:1.006/30/08
    
    1.25:1.00
    
    1.25:1.009/30/08
    
    1.50:1.00
    
    1.40:1.0012/31/08
    
    1.50:1.00
    
    1.40:1.00Increases continuing until
3/31/09
    
    1.50:1.00
    
    1.50:1.00Maximum Capital Expenditures
    
    12/31/07
    
    $15.0 million
    
    $16.5 million12/31/08
    
    $15.0 million
    
    $15.0 million
  Financial Covenant
    
    Required Covenant
    
    Actual ResultTotal Leverage Ratio (1)
    
    5.50:1.00 (maximum)
    
    
    5.35Senior Leverage Ratio (2)
    
    2.75:1.00 (maximum)
    
    
    2.45Interest Coverage Ratio (3)
    
    3.25:1.00 (minimum)
    
    
    3.30Fixed Charge Coverage Ratio (4)
    
    1.15:1.00 (minimum)
    
    
    2.31Maximum Capital Expenditures (5)
    
    $15.0 million
    
    $13.9 million
 
 (1)
    
    Total outstanding debt to Consolidated Adjusted EBITDA for the trailing four quarters.(2)
    
    Total outstanding senior secured debt to Consolidated Adjusted EBITDA for the trailing four
quarters.(3)
    
    Ratio of Consolidated EBITDA for the trailing four quarters to interest expense for such period.(4)
    
    Ratio of Consolidated EBITDA for the trailing four quarters to fixed charges (cash interest
expense, scheduled principal payments on debt, capital expenditures, income taxes paid,
earn-out and milestone payments) for such period.(5)
    
    Includes expenditures of $6.3 million for the planned expansion of our corporate headquarters
building and $3.2 million for the implementation of a new enterprise resource planning system.
These projects were completed in the second quarter of 2007. 39




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##### Table of Contents



Notes to Consolidated Financial Statements 
No. 12, Debt.
 Cash commitments.
  Ovion
   40




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##### Table of Contents



Additional Information on AMS
 http://www.sec.gov.
 www.AmericanMedicalSystems.com
 41




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##### Table of Contents



ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 Interest Rates
   Currency
    Inflation
  
 ITEM 4. CONTROLS AND PROCEDURES
 Evaluation of Disclosure Controls and Procedures
  Changes in Internal Control over Financial Reporting
  42




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##### Table of Contents



PART II. OTHER INFORMATION
 
 ITEM 1. LEGAL PROCEEDINGS.
  
 ITEM 6. EXHIBITS
 Item No.
    
    Item
    
    Method of Filing10.1
    
    Settlement Agreement dated
August 14, 2007, among AMS,
Laserscope and Iridex
Corporation.
    
    Incorporated by reference to
Exhibit 10.1 of the Companys
Form 8-K filed August 20,
2007 (File No. 000-30733).10.2
    
    First Amendment to Credit and
Guaranty Agreement, dated as
of October 29, 2007, by and
among American Medical
Systems, Inc., each of the
other credit parties party
thereto, including American
Medical Systems Holdings,
Inc., and CIT Healthcare LLC,
as administrative agent.
    
    Incorporated by reference to
Exhibit 10.1 of the Companys
Form 8-K filed October 29,
2007 (File No. 000-30733).31.1
    
    Certification by Chief
Executive Officer pursuant to
Section 302 of the
Sarbanes-Oxley Act of 2002.
    
    Filed with this Quarterly
Report on Form 10-Q.31.2
    
    Certification by Chief
Financial Officer pursuant to
Section 302 of the
Sarbanes-Oxley Act of 2002.
    
    Filed with this Quarterly
Report on Form 10-Q.32.1
    
    Certification pursuant to 18
U.S.C. Section 1350, as
adopted pursuant to Section
906 of the Sarbanes-Oxley Act
of 2002.
    
    Filed with this Quarterly
Report on Form 10-Q.
 43




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##### Table of Contents



SIGNATURES
  AMERICAN MEDICAL SYSTEMS
HOLDINGS, INCNovember 8, 2007

Date
    
    
    
    By
    
    /s/ Martin J. Emerson

Martin J. Emerson
President and Chief Executive OfficerNovember 8, 2007
    
    
    
    By
    
    /s/ Mark A. HeggestadDate
    
    
    
    
    
    Mark A. Heggestad
Executive Vice President and Chief Financial
Officer
 44




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##### Table of Contents



AMERICAN MEDICAL SYSTEMS HOLDINGS, INC.
 
 EXHIBIT INDEX TO QUARTERLY REPORT ON FORM 10-Q
 For the Fiscal Quarter Ended September 29, 2007
 Item No.
    
    Item
    
    Method of Filing10.1
    
    Settlement Agreement dated
August 14, 2007, among AMS,
Laserscope and Iridex
Corporation.
    
    Incorporated by reference to
Exhibit 10.1 of the Companys
Form 8-K filed August 20,
2007 (File No. 000-30733).10.2
    
    First Amendment to Credit and
Guaranty Agreement, dated as
of October 29, 2007, by and
among American Medical
Systems, Inc., each of the
other credit parties party
thereto, including American
Medical Systems Holdings,
Inc., and CIT Healthcare LLC,
as administrative agent.
    
    Incorporated by reference to
Exhibit 10.1 of the Companys
Form 8-K filed October 29,
2007 (File No. 000-30733).31.1
    
    Certification by Chief
Executive Officer pursuant to
Section 302 of the
Sarbanes-Oxley Act of 2002.
    
    Filed with this Quarterly
Report on Form 10-Q.31.2
    
    Certification by Chief
Financial Officer pursuant to
Section 302 of the
Sarbanes-Oxley Act of 2002.
    
    Filed with this Quarterly
Report on Form 10-Q.32.1
    
    Certification pursuant to 18
U.S.C. Section 1350, as
adopted pursuant to Section
906 of the Sarbanes-Oxley Act
of 2002.
    
    Filed with this Quarterly
Report on Form 10-Q.
 45